Answer:
Q1) a. 6.60%
Q2) c. retaining a higher percentage of earning will result in a higher growth rate.
Explanation:
Q1.)
Use dividend discount model (DDM) to solve for the growth rate;
g = r- (D1/P0)
whereby;
g = dividend growth rate
r = required rate of return = 11.40% or 0.1140 as a decimal
D1 = next year's dividend = $1.14
P0 = Current stock price = $23.75
g = 0.1140 - (1.14/23.75)
g = 0.1140 - 0.048
g = 0.066 or 6.6%
Therefore, the growth rate is 6.60%, making choice A correct.
Q2.)
c. Retained earning is the proportion of total net profit that a company reinvests back into the business for the purpose of investing in other potentially profitable projects.The returns from these projects would increase the value of the company at a faster rate if a higher percentage e.g 90% is retained. On the other hand, if the company pays a larger portion of its retained earnings e.g 70% as dividends, it will experience a slower growth rate making choice C correct.
Answer:
holding period yield is 9.25%
Dividend yield is 0.25%
Capital gains yield is 9.00%
Explanation:
Holding period yield is the total return that accrues to an investment over a period which the investment is owned.
Holding period yield=(Current price-Initial price+dividend)/initial price
current price is $109
initial price is $100
dividend is $0.25
holding period yield =($109-$100+$0.25)/$100
=9.25%
Dividend yield =dividend/initial price
=$0.25/$100
=0.25%
Capital gains yield=(Current price-initial price)/initial price
=($109-$100)?$100
=9.00%
Invariably holding period yield is the dividend yield plus capital gains yield.
Answer:
January 1, 2021, building purchased
Dr Building 420,000
Cr Cash 100,000
Cr Notes payable 320,000
Explanation:
The building account (asset) must be recorded at the purchase cost. The mortgage is considered a note payable (long term liability), while the cash account (asset) decreases, therefore, it must be credited.
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